Living off pension drawdown

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  • ... and of course, that's the same Gordon Brown that claimed to have put an end to 'boom and bust' economic cycles!  Was he channelling his inner King Canute?
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  • LoFiLoFi Frets: 534

    Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.
    At 60-or-so, and moving into draw-down mode, you'd expect a pension fund (particularly a fairly small one, which is what it sounds like the OP has) to be very defensive - i.e. in very low-risk investments. You'd be lucky to make 7% on that sort of risk profile.
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  • LoFi said:

    Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.
    At 60-or-so, and moving into draw-down mode, you'd expect a pension fund (particularly a fairly small one, which is what it sounds like the OP has) to be very defensive - i.e. in very low-risk investments. You'd be lucky to make 7% on that sort of risk profile.

    7% is ambitious for any portfolio right now.
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  • jeztone2jeztone2 Frets: 2160
    I'm 49. I made a decision to go part time last September. I do a 2 day week, I've kept my terms and by working 2 Sunday's a month. I'm managing. It will be easier this time next year as I'll have no debt to service and I love be able to live a bit more. 
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  • BarneyBarney Frets: 614
    FastEddie said:
    Give The Pensions Advisory Service a call. 
    They have a helpline for ad hoc questions but you can have a free Pensions Wise call.

    I've just finished a contract working for them. I'm a Wealth Manager by trade. It's a great service and gives you around 1 hour of guidance around all the options.

    A couple of pointers, money has to last a long time as we are living longer. Invest in low charge funds, 0.3% Annual Management fee, spread monies across different countries in trackers, Vanguard are a great fund manager for this. 
    Don't allow a financial adviser to take a regular fee, 0.5% to 1% they will want, they are typically NOT fund managers and only tell you the very basics on investment funds.


    Thanks I didn't know there was anything like this ..and yes I have a financial advisor taking 1% he said he put my 2 pensions in one and said I would have been paying 1% to each of them anyways ?
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  • RandallFlaggRandallFlagg Frets: 13929
    edited May 2019
    LoFi said:

    Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.
    At 60-or-so, and moving into draw-down mode, you'd expect a pension fund (particularly a fairly small one, which is what it sounds like the OP has) to be very defensive - i.e. in very low-risk investments. You'd be lucky to make 7% on that sort of risk profile.

    7% is ambitious for any portfolio right now.
    What's a typical return then?

    One of my pensions is with Standard Life shows this rate of performance, the figures are percentages. I'm on an average risk profile



    Cumulative performance is the total amount (%) that a fund has gained or lost over particular time periods.

    The performance shown here is after charges


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  • LoFi said:

    Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.
    At 60-or-so, and moving into draw-down mode, you'd expect a pension fund (particularly a fairly small one, which is what it sounds like the OP has) to be very defensive - i.e. in very low-risk investments. You'd be lucky to make 7% on that sort of risk profile.

    7% is ambitious for any portfolio right now.
    What's a typical return then?

    One of my pensions is with Standard Life shows this rate of performance, the figures are percentages. I'm on an average risk profile



    Cumulative performance is the total amount (%) that a fund has gained or lost over particular time periods.

    The performance shown here is after charges


    You ask: "What's a typical return?"

    I don't think it's as easy as that. There is no 'typical' in investing. You could ask: "What's an acceptable return?"  However, even that is tricky... as it depends on where the economic cycle is when you buy the asset.

    If you look at some of the figures in your chart... the 1 year figure has obviously not achieved 7% (one is negative)... in the 3 year figures, one of the funds is a couple of a percent below 7% compound, whereas the other is over 4.5% above what you'd expect from 7% compound.  The 5 year figures are a long way short of 7% compound (by my crude calcs, 7% compound would equate to 40.26%).  The 10 year figures are interesting and, at first sight, appear very encouraging... but I'd suggest they're probably not that meaningful... because 10 years ago the stock market was still suffering from the 2008 crash - so I'd expect to see major growth from 10 years ago, as many stock prices were a bit bombed out then. I suspect 12 year and 14 year figures would tell a very different story (as the stock market would have been at a higher level then... rather than after the crash).

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  • RandallFlaggRandallFlagg Frets: 13929
    It's tricky trying to work out when you have enough and what a sensible annual draw down amount will be then? My instincts still tell me that draw down is preferable to an annuity at the current rates offered.


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  • It's tricky trying to work out when you have enough and what a sensible annual draw down amount will be then? My instincts still tell me that draw down is preferable to an annuity at the current rates offered.

    Yes, I think there can be major benefits for drawdown... but it's not for everyone. On the other hand, annuity rates have risen recently (but they're still way lower than they were 15 or so years ago).

    I should have added that I guess the figures in your table are total returns... not real returns (ie I suspect they don't take account of how inflation impacts the value of the investment and the returns).

    I've just done a bit of Googling and saw a figure of 5.2% annual return quoted for UK stock market between 1989 and 2014.

    In this article from IC, the first expert suggests that the punter could assume 5% growth... (he also reveals the rate since 1900)

    https://www.investorschronicle.co.uk/portfolio-clinic/2018/05/31/be-more-realistic-about-your-future-returns/


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  • RandallFlaggRandallFlagg Frets: 13929
    It's tricky trying to work out when you have enough and what a sensible annual draw down amount will be then? My instincts still tell me that draw down is preferable to an annuity at the current rates offered.

    Yes, I think there can be major benefits for drawdown... but it's not for everyone. On the other hand, annuity rates have risen recently (but they're still way lower than they were 15 or so years ago).

    I should have added that I guess the figures in your table are total returns... not real returns (ie I suspect they don't take account of how inflation impacts the value of the investment and the returns).

    I've just done a bit of Googling and saw a figure of 5.2% annual return quoted for UK stock market between 1989 and 2014.

    In this article from IC, the first expert suggests that the punter could assume 5% growth... (he also reveals the rate since 1900)

    https://www.investorschronicle.co.uk/portfolio-clinic/2018/05/31/be-more-realistic-about-your-future-returns/


    Just came to that conclusion myself after an hour's research! 5% is now applied to my forecast model.


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  • It's tricky trying to work out when you have enough...

    Yes... totally tricky... and partly because you don't know how long you're going to live.  Plus it depends on whether you have kids you want to leave some money/assets to when you die. If not... and there's just you and a partner, you can think about using up all your cash/pension over the years... and then selling up your property at some point when you're almost gaga and just need cash to pay the fees for the care home!!!!

    It's tricky trying to work out ... what a sensible annual draw down amount will be then? 

    Yes... just a few years ago, I think the govt indicated a drawdown figure of 6.48% was OK-ish (I think that was at age 65). I don't think you'll find many people who'd use that figure now.  Some say 4%.... but there's a growing number that suggest 3.5% (or even less if you're younger than 65... say 60 years of age).

    My instincts still tell me that draw down is preferable to an annuity at the current rates offered.


    Again, a drawdown arrangement could allow you to leave an inheritance for kids etc. On the other hand, if you had a single life annuity, it would die with you (although some may pay out for 5 years from start of contract, even if you die on day 1)... and a dual life annuity would die when you and your partner have shuffled off this mortal coil... again leaving nothing for your kids.

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  • Just came to that conclusion myself after an hour's research! 5% is now applied to my forecast model.

    Seems like a good move. Assume a reasonable figure... then, if your investments do better than that, it's time to book an exotic holiday!
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  • spark240spark240 Frets: 2073
    Ive had cash and property investments for the last 10+ years....guess what the averaged return has been....5% 


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  • spark240 said:
    Ive had cash and property investments for the last 10+ years....guess what the averaged return has been....5% 
    Haha.
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  • @RandallFlagg ;
    Interesting article about drawdown rates... and how 4% is not current thinking...
    https://www.ftadviser.com/pensions/2018/04/27/actuaries-set-3-5-as-safe-drawdown-rate/

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  • RandallFlaggRandallFlagg Frets: 13929
    @RandallFlagg ;
    Interesting article about drawdown rates... and how 4% is not current thinking...
    https://www.ftadviser.com/pensions/2018/04/27/actuaries-set-3-5-as-safe-drawdown-rate/

    Stop looking, it's getting worse! :-)

    I note that ""However, the actual sustainable income on an individual level depends on age, gender, life expectancy and investments, and therefore we would always recommend that people seek advice before deciding on their drawdown level."

    How the hell can a financial advisor advise of life expectancy??


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  • RandallFlaggRandallFlagg Frets: 13929
    Thee's always the horses and Betfair to top up your returns  ;)


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  • @RandallFlagg ;
    Interesting article about drawdown rates... and how 4% is not current thinking...
    https://www.ftadviser.com/pensions/2018/04/27/actuaries-set-3-5-as-safe-drawdown-rate/

    Stop looking, it's getting worse! :-)

    I note that ""However, the actual sustainable income on an individual level depends on age, gender, life expectancy and investments, and therefore we would always recommend that people seek advice before deciding on their drawdown level."

    How the hell can a financial advisor advise of life expectancy??

    No... I'm not questioning your figure of 5%... the 5% and 3.5% apply to two different things.  The 5% (if that's the figure you're using) is the assumed return on your investments while you're building up your pension pot... then the 3.5% is the figure you may want to use for the rate of drawdown when you've retired.

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  • RandallFlaggRandallFlagg Frets: 13929
    @RandallFlagg ;
    Interesting article about drawdown rates... and how 4% is not current thinking...
    https://www.ftadviser.com/pensions/2018/04/27/actuaries-set-3-5-as-safe-drawdown-rate/

    Stop looking, it's getting worse! :-)

    I note that ""However, the actual sustainable income on an individual level depends on age, gender, life expectancy and investments, and therefore we would always recommend that people seek advice before deciding on their drawdown level."

    How the hell can a financial advisor advise of life expectancy??

    No... I'm not questioning your figure of 5%... the 5% and 3.5% apply to two different things.  The 5% (if that's the figure you're using) is the assumed return on your investments while you're building up your pension pot... then the 3.5% is the figure you may want to use for the rate of drawdown when you've retired.

    Ok, but the balance of your drawdown pot remains invested so what's a sensible rate of investment return on the pot balance through the life of the drawdown?

    I'm planning to draw down more that 3.5% a year I can tell you, its not worth retiring for that dribbling amount!


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  • RandallFlaggRandallFlagg Frets: 13929
    edited May 2019
    I love these pension discussions, we should form an "old bastards" club and have a separate forum section for pension debate! Admin..??


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